Chapter 3

Universities as Innovation Drivers

A key factor in the rise of the United States as a technological power has been a long tradition of close ties and frequent collaboration between companies and a network of first-rate universities1. Underlying the success of innovation clusters such as Silicon Valley, Route 128, and the Research Triangle of North Carolina are local universities with a longstanding mission of spurring economic development by developing technology with and transferring technology to local industry and stimulating the creation of new businesses in university-centered incubators and science parks. Technology-intensive companies commonly locate their operations near the best universities in particular fields of science and engineering in order to enable their internal research departments to work with “star” scientists and to recruit promising students.

Start-up companies spinning off from universities most commonly establish operations near those institutions.2 “[T]he presence of research universities is now widely viewed as a necessary (if insufficient) condition to bring about innovation-based economic development of regions.”3 Illustrating the impact a single research university can have on a region, in 2004 alone MIT produced 133 patents, launched 20 startup companies, and spent $1.2 billion in

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1“Premier universities are at the heart of just about every high-tech success story: Stanford University and UC Berkeley in the Silicon Valley; Boston-area institutions such as Harvard and the Massachusetts Institute of Technology that helped draw researchers to the Route 128 Corridor; the University of Texas and its support of Austin’s booming computer industry.” “Universities Need to Court Top-Tier Researchers, The Plain Dealer March 21, 2002.

2The Association of University Technology Managers reported in 2002 that in the fiscal year 2000, at least 368 new companies were formed based on university research and that most of them settled “near the institution where the technology was born. “Universities Need to Court Top-Tier Researchers,” The Plain Dealer March 31, 2002.

3Hegde. “Public and Private Universities,” op. cit., p. 7, 2005. Citing Feldman “The New Economics of Innovation, Spillovers and Agglomeration: A Review of Empirical Studies,” New Technology 8:5-25, 1999.



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Chapter 3 Universities as Innovation Drivers A key factor in the rise of the United States as a technological power has been a long tradition of close ties and frequent collaboration between companies and a network of first-rate universities1. Underlying the success of innovation clusters such as Silicon Valley, Route 128, and the Research Triangle of North Carolina are local universities with a longstanding mission of spurring economic development by developing technology with and transferring technology to local industry and stimulating the creation of new businesses in university-centered incubators and science parks. Technology-intensive companies commonly locate their operations near the best universities in particular fields of science and engineering in order to enable their internal research departments to work with “star” scientists and to recruit promising students. Start-up companies spinning off from universities most commonly establish operations near those institutions.2 “[T]he presence of research universities is now widely viewed as a necessary (if insufficient) condition to bring about innovation-based economic development of regions.”3 Illustrating the impact a single research university can have on a region, in 2004 alone MIT produced 133 patents, launched 20 startup companies, and spent $1.2 billion in 1 “Premier universities are at the heart of just about every high-tech success story: Stanford University and UC Berkeley in the Silicon Valley; Boston-area institutions such as Harvard and the Massachusetts Institute of Technology that helped draw researchers to the Route 128 Corridor; the University of Texas and its support of Austin’s booming computer industry.” “Universities Need to Court Top-Tier Researchers, The Plain Dealer March 21, 2002. 2 The Association of University Technology Managers reported in 2002 that in the fiscal year 2000, at least 368 new companies were formed based on university research and that most of them settled “near the institution where the technology was born. “Universities Need to Court Top-Tier Researchers,” The Plain Dealer March 31, 2002. 3 Hegde. “Public and Private Universities,” op. cit., p. 7, 2005. Citing Feldman “The New Economics of Innovation, Spillovers and Agglomeration: A Review of Empirical Studies,” New Technology 8:5-25, 1999. 49

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50 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES sponsored research. Data from 1994 showed that, at that time, MIT graduates had founded over 4,000 companies employing 1.1 million people generating $232 billion in sales worldwide.4 In the Boston area, MIT is flanked by other great research universities, including Harvard, Tufts, the University of Massachusetts, Boston University and others. Since the early 1970s, spinoffs from these institutions have created a thriving pharmaceutical industry where virtually none had previously existed.5 The state of Maryland offers an extreme example of university-driven economic development. According to Aris Melissaratos of Johns Hopkins University, the state at one point invested nearly 90 percent of its economic development budget into local universities and research programs to take advantage of complementary federal investments in the state by the National Institutes of Health, the U.S. military, and the Food and Drug Administration. As a result, he observed, Maryland receives more research dollars per capita than any other state. The economic result in the state has been the creation of a diversified base of industries including information technology, biotechnology and biomedicine, and aerospace and defense.6 Compared with universities in most developed countries, U.S. universities are highly decentralized and independent of central authority. The U.S. has never had an Education Ministry allocating resources and giving central direction to the nation’s institutions of higher learning. Other than the military academies, there are no “federal universities.” Universities enjoy a high degree of freedom in developing curricula, introducing novel courses of study and defining their relationship with the private sector. In addition, in contrast to a number of European and Asian countries, the United States has not made systematic investments in a system of public industrial laboratories such as Germany’s Fraunhofer-Gesellschaft. The U.S. supports a system of national laboratories through the Department of Energy, but most of these concentrate on national defense and energy themes. The national laboratories are encouraged to engage the private sector and transfer technology, but their primary mission is not private industrial development.7 Most public R&D support for industry 4 Presentation of David Daniel, University of Texas at Dallas, “Making the State bigger: Current Texas University Initiatives,” National Research Council, Clustering for 21st Century Prosperity: Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2011. This figure models MIT graduates who went on to other institutions for graduate studies and who founded companies in clusters distant from MIT itself. 5 Presentation by Ashley J. Stevens, Boston University and Association of University Technology Management, “Current Trends and Challenges in University Commercialization,” National Research Council, Clustering for 21st Century Prosperity: Summary of a Symposium, op. cit. 6 Aris Melissaratos, “Improving the University Model,” National Research Council, Clustering for 21st Century Prosperity: Summary of a Symposium, op. cit. 7 The Stevenson-Wydler Technology Innovation Act of 1980 provided a legal foundation for technology transfer at the national laboratories and established a technology transfer office, the Office of Research and Technology Application. The Federal Technology Transfer Act of 1986 requires federal laboratories to actively seek opportunities to transfer technology to industries, universities, and state and local government. The National Competitiveness Technology Transfer

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UNIVERSITIES AS INNOVATION DRIVERS 51 including federal support occurs via collaborations between universities and companies.8 U.S. research universities, both private and public, produce most of the country’s science and engineering graduates, perform more than half of the U.S. basic science and engineering research, and are often major drivers of economic development in the areas in which they are located.9 The strengths of the U.S. research university system include its heterogeneity, its diversity, its decentralized character, and the joining of research with graduate education. Engineering and applied science are incorporated in the curricula of most U.S. research universities, a fact which reinforces “the long-standing predisposition of U.S. universities toward problem-solving, working with industry, and training people for industry.”10 According to Robert Berdahl, “Research universities also provide the scientific, technical, and professional foundations for those who will go on to found and lead the new industries made possible by innovative research.”11 Many of the nation’s foremost research universities have been private institutions—albeit recipients of extensive public funding. MIT and Stanford have been central to the emergence of dense concentrations of knowledge-based industries in Boston and the San Francisco Peninsula, respectively. At the same time, the contribution of U.S. public research universities, which receive a proportion of their funding from state and local budget appropriations, to regional development of innovation-based industries should not be overlooked. These institutions educate a large percentage of undergraduate and graduate students in science, mathematics, and engineering and perform over half of U.S. academic R&D.12 Public universities have played a key role in local economic development since the early days of the United States. A tradition of state Act of 1989 made the transfer of technology a mission of government-owned, contractor operated (GOCO) laboratories and enabled GOCOs to enter into cooperative research and development agreements (CRADAs). 8 Denis Gray, “Cross Sector Research Collaboration in the USA: A National Innovation System Perspective,” Science and Public Policy 38(2):123, 132, March 2011. 9 See National Research Council, Research Universities and the Future of America: Ten Breakthrough Actions Vital to Our Nation's Prosperity and Security, Washington, DC: The National Academies Press, 2012. The report “focuses on strengthening and expanding the partnership among universities and government, business, and philanthropy that has been central to American prosperity and security.” See also, PCAST, “Transformation and Opportunity, the Future of the U.S. Research Enterprise,” Washington, DC: The White House, November 2012. This report addresses the challenges of “enhancing long-range U.S. investment in basic and early-stage applied research and reducing the barriers to the transformation of the results of that research into new products, industries, and jobs.” 10 Ibid, p. 323. 11 Robert Berdhal, “Research Universities: Their Value to Society Extends Well Beyond Research,” April 2009. 12 National Science Board, “Diminishing Funds and Rising Expectations: Trends and Challenges for Public Research Universities,” Arlington, VA: National Science Foundation, 2012, pp. 1-2.

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52 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES funded colleges began in the South in the late Eighteenth Century and spread to the rest of the country in the Nineteenth.13 The federal Morrill Land Grant Act of 1862 provided for the donation of public lands to states and territories to facilitate the establishment of institutions of higher learning.14 The purpose of these land-grant institutions, as stated in the Act, was without excluding other scientific and classical studies, and including military tactics, to teach such branches of learning as are related to agriculture and the mechanic arts, in such manner as the legislatures of the States may respectively prescribe, in order to promote the liberal and practical education of the industrial classes in the several pursuits and professions in life.15 A number of public universities were established pursuant to the Morrill Land Grant Act with an explicit mandate to perform research with local application in agriculture and the “mechanic arts.”16 Eventually, every U.S. state had at least one public state-funded university. The enactment of the Morrill Act and its follow-on legislation was “probably one of the most significant things Congress has ever done.”17 Political considerations associated with state funding ensured that the research topics and curricula of the state schools addressed topics of relevance to local economies. “Especially within emerging subfields of engineering and, to a lesser extent, within mining and metallurgy, state university systems often introduced new programs as soon as the requirements of the local economy became clear,” a tradition that has continued down to the present day.18 The federal Hatch Act of 1887 provided for permanent annual appropriations to each state to establish and operate agricultural experimental stations, “thus marking 13 In the Southern states, the impacts of the Civil War retarded the development of private educational systems compared to their Northern counterparts. State educational institutions were launched in Georgia (1785), North Carolina (1789), South Carolina (1801), and Virginia (1819). Diana R. Rhoten, and Walter W. Power, “Public Research Universities: From Land Grant to Federal Grant to Patent Grant,” in Diana Rhoten and Craig Calhoun, eds., Knowledge Matters: The Public Mission of the Research University, New York: Columbia University Press, 2011, p. 321. 14 The Second Morrill Act (1890) provided for cash grants to land-grant colleges that did not discriminate in their admissions policies on the basis of race. 15 Morrill Act of 1862, Section 4. A faculty member of North Dakota State University in Fargo responsible for university extension services said in 2007 with respect to this language, “You read that today and it seems so second nature to us, but it was revolutionary in the history of the world.” “Evolution of Extension,” Grand Forks Herald October 14, 2007. 16 Deepak Hegde, “Public and Private Universities: Unequal Sources of Regional Innovation?” Georgia Tech Ivan Allen College Working Paper Series 2005, Working Paper #5, p. 4. 17 Joseph T. Walsh, Building the Illinois Innovation Economy: Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2013. 18 David C. Mowery, and Nathan Rosenberg. 1993. “The U.S. National Innovation System” in Richard R. Nelson, ed., National Innovation Systems: A Comparative Analysis Oxford: Oxford University Press. pp. 35-36.

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UNIVERSITIES AS INNOVATION DRIVERS 53 the advent of public universities’ responsibilities to help generate research that both enhanced agricultural productivity and supported agricultural communities.”19 In the late Nineteenth century, the land grant schools loaded their faculty onto trains, and the professors went barnstorming through their states, with “extension trains” making whistle-stops in small towns, enabling farmers to board them and learn of the latest agricultural research findings.20 The creation of a federally-funded technology-transfer system in agriculture also strengthened and institutionalized the tradition of a practical and utilitarian university (e.g. one that worked closely with industry) that began with the early state universities. Over time, the viability and success of the land grant universities probably created a precedent for more traditional state universities and private universities to move closer to the land grants in their mission, values and operations.21 Such traditional state universities have since then created new and relevant missions that further broaden the framework set forth by pioneering private and public land grant universities. Many such universities have provided deeper access to first generation students, pertinent expertise to industry, technology commercialization and spin out of companies. A recent model of an innovative university-industry model can be found in the collaboration between The University of Akron and The Timken Company wherein the University reached out to a company and took over a key technology and made it accessible to the broader global markets.22 This broadens the traditional university technology commercialization model to not 19 Rhoten and Power, op. cit., 2011, p. 321. The enactment of the Smith-Lever Act of 1914 made federal funding available for the diffusion of agricultural research results. Each state is required to match the amount of funds it receives from the federal government. Ibid. 20 “Evolution of Extension,” Grand Forks Herald October 14, 2007. 21 Denis Gray, “Cross Sector Research Collaboration in the USA: A National Innovation System Perspective,” Science and Public Policy 38(2). March 2011, p. 125. Citing R. Stankewicz, University-Industry Relations, Lund, Sweden: Research Policy Institute, 1984. Texas A&M, a land grant school that currently enrolls 50,000 students, has an annual research budget of over $700 million. Texas A&M’s College of Agriculture and Life Sciences is one of the country’s largest academic units educating students for careers in agribusiness. It has numerous highly-regarded service organizations, including Texas AgriLife Research, Texas AgriLife Extension Service, Texas Forest Service, and Texas Veterinary Diagnostic Laboratory. Texas A&M’s Dwight Look College of Engineering works through services organizations that include Texas Transportation Institute, Texas Engineering Experiment Station, and Texas Engineering Extension Service. Finally, Texas A&M operates a College of Medicine and a college of Veterinary Medicine and Biomedical Sciences. “Texas A&M is a Premier Land-Grant School,” The Eagle August 19, 2012. 22 See Chapter 6, Box 6-2, “The Akron Model of Industry-University Partnership.” See Industry Week, “Innovation: MIT -- To Sustain Innovation, Manufacture,” March 8, 2013. .

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54 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES only include its own internal technologies, but to move technologies from industry to more entrepreneurial environments. Such endeavors further enhance the regional ecosystems as they create two-way pipelines of intellectual property, wherein in the past they have usually been one-way, i.e. from a university to a company. As this model progresses, and more spin-out companies are launched, this cooperation is giving rise to multi-way pathways of innovation, according to Luis Proenza.23 UNIVERSITIES AND INDUSTRIALIZATION In the years after the Civil War, the U.S. economy grew explosively as railroads and the telegraph revolutionized transportation and communications and new, mechanized methods of production were adopted—“a wave of industrial innovation…far more wide-ranging than that which occurred in Britain at the end of the eighteenth century” which “has been quite properly termed by historians the Second Industrial Revolution.” 24 By 1913, the United States accounted for 36 percent of the world’s industrial output compared with Germany’s 16 percent and Britain’s 14 percent.25 Private and public U.S. universities responded to the rapid advances in technology with remarkable speed and flexibility, establishing curricula in emerging practical disciplines to train large numbers of engineers, scientists, and managers to lead the new industries. The foremost U.S. university driving U.S. industrialization in the late Nineteenth and early Twentieth century was the Massachusetts Institute of Technology. From its inception in 1861 as a chartered private corporation, MIT emphasized the need to combine scientific theory with engineering practice through hands-on experience in laboratory teaching and experimentation. One of MIT’s early presidents, John D. Rankle, arranged for advanced students to work in the machine shop of the Boston Navy Yard and take field trips to local manufacturing facilities.26 Following a protracted internal controversy among leading faculty members about MIT’s proper relationship with industry MIT, after 1920, became deeply engaged with local industry—over a third of its teaching staff was actively engaged in research, testing, and commercial analysis for industry and most engineering department chairs ran consulting firms in downtown Boston.27 The General Electric Company recruited key researchers 23 Luis Proenza, “Relevance, Connectivity, and Productivity: The Akron Model,: in National Research Council, Building the Ohio Innovation Economy: Summary of a Symposium, Washington, DC: The National Academies Press, 2013. 24 Alfred D. Chandler, Scale and Scope: The Dynamics of Industrial Capitalism, Cambridge, MA, and London: Belknap Press of Harvard University, 1990, p. 62. 25 Ibid. p. 47. 26 Merritt R. Smith, “God Speed the Institute: The Foundational Years, 1861-1864,” in David Kaiser, ed., Becoming MIT: Moments of Decision, Cambridge, MA, and London: The MIT Press, 2010, pp. 23-24. 27 Alfred D Chandler, Scale and Scope: The Dynamics of Industrial Capitalism, op. cit., p. 62.

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UNIVERSITIES AS INNOVATION DRIVERS 55 from MIT’s faculty and “continued to rely heavily on MIT’s engineering department” which was “reputed to be the best in the world for both technical expertise and the training of potential managers.” Similarly DuPont drew some of its key corporate leaders from the ranks of MIT graduates and relied on MIT’s chemical engineering department for technical support.28 The industrial development efforts of elite private universities were paralleled by those of the public research universities. The University of Akron not only trained skilled personnel for the local rubber industry, but also acquired a strong reputation for its research capability in rubber processing and, subsequently, polymer chemistry.29 In 1890, the University of Wisconsin developed and introduced the Babcock test, an inexpensive method for measuring the butterfat content and assessing the adulteration of milk, a capability of obvious value to the state’s extensive dairy industry.30 State universities, in particular, offered a broad curriculum linked to the local economy. In the years after World War I, the University of Illinois offered courses in architectural engineering, municipal and sanitary engineering, railway engineering, civil and mechanical engineering, and ceramic engineering. “Nearly every industry and government agency in Illinois has its own department at the state university in Urbana-Champaign.”31 The University of Minnesota operated a sustained program from the end of World War I through the early 1960s to develop a technological response to the depletion of the state’s high-yield iron ores in the Mesabi Range and the need to develop its vast reserves of ores with lower iron content.32 28 Christophe Lecuyer, “Patrons and a Plan,” in David Kaiser, ed., Becoming MIT: Moments of Decision, op. cit., pp. 69. In the early years of the twentieth century, a number of young faculty members began to challenge MIT’s prioritization of teaching undergraduates and the nature of its approach to engineering education. A number of these individuals had performed graduate work in Germany, where they witnessed sophisticated collaborations between academic research laboratories and major industrial firms. Arthur A. Noyes sought to turn MIT into a research university focused on the sciences, which would forge close ties with industry, particularly technology-intensive companies. He founded the Research Laboratory of Physical Chemistry, which graduated MIT’s first Ph.D.s in 1907 and sent many alumni onto research careers in industry. William H. Walker, a rival of Noyes, founded the Research Laboratory of Applied Chemistry, saw engineers as corporate leaders and emphasized the management dimension of engineering, with an emphasis on serving small and medium companies. Dugald Jackson, the chairman of the department of Electrical Engineering, saw the main mission of technical institutes like MIT as serving large firms as utilities and major makers of electrical equipment. Ibid, pp. 62-63. 29 See the University of Akron website at . 30 N. Rosenberg and R. R. Nelson, “American Universities and Technical Advance in Industry,” Research Policy 23:326. 31 Ibid, p. 52. 32 The university’s Mines Experiment Station focused on the processing and engineering challenges associated with extracting iron from taconite ores in which impurity levels reached 50 to 70 percent, but which existed in Minnesota in enormous quantity. This effort required “decades of tedious experimentation.” The project was launched before World War I and success was not achieved until the early 1960s. The principal financing came from the state of Minnesota through the university to

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56 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES “One of the major accomplishments of the American universities during the first half of the Twentieth Century was to effect the institutionalization of the new engineering and applied science disciplines.”33 In contrast to Europe, where engineering was taught at separate schools, in the U.S. engineering subjects were introduced at elite universities like Yale (1863) and Columbia (1864). In 1894, MIT President Francis Amasa Walker observed that “there is now not a State in the Union without an institution in which more or less of a course in Engineering is laid out. Some of these are classical institutions of long standing and high repute, which are rapidly as possible transforming to meet the wants of the age.”34 The reaction of U.S. universities to the advent of new electricity-based industries was “virtually instantaneous,” with MIT launching courses of instruction in electrical engineering in 1882, the same year Edison’s Pearl Street Station became operational in New York City, followed by Cornell in 1883. In the Twentieth Century, U.S. engineering schools and their faculty routinely developed electrical generating and transmission equipment in their labs.35 These traditions have been carried forward down to the present day. In perhaps the most famous example of University-led economic development, Stanford University played a central role in the emergence and flourishing of Silicon Valley, a dynamic which is examined in the Annex of this report. Universities also played a key role in the success of research Triangle Park in North Carolina, also described in the Annex. “In terms of commercial success, American dominance of the computer software industry was overwhelmingly due to the remarkable speed with which university faculties were able to develop and introduce an entirely new academic curriculum in computer science” between 1959 and 1965. The activities of U.S. universities, backed by federal funding, “led directly into the creation of today’s Internet.”36 the experiment station, which operated its own blast furnace. N. Rosenberg and R. R. Nelson, “American Universities and Technical Advance in Industry,” Research Policy op. cit. 33 N. Rosenberg and R. R. Nelson, “American Universities and Technical Advance in Industry,” Research Policy op. cit. 34 Merrit Roe Smith, “God Speed the Institute: The Foundational Years, 1861-1864,” in Becoming MIT: Moments of Decision, op. cit., p. 30. 35 N. Rosenberg and R. R. Nelson, “American Universities and Technical Advance in Industry.” Research Policy 23:320. 36 Research performed at the Advanced Research Projects Agency (ARPA) was led by academics on leave from their institutions. The World Wide Web began as an ARPANET effort to link four research universities, MIT, Stanford, Cal-Berkeley, and Carnegie-Mellon, all of which were doing contract research for the Department of Defense. David Hart, The Emergence of Entrepreneurship Policy: Governance, start-Ups, and Growth in the U.S. Knowledge Economy, Cambridge: Cambridge University Press, 2003.

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UNIVERSITIES AS INNOVATION DRIVERS 57 THE EMERGENCE OF COOPERATIVE RESEARCH CENTERS Since 1980, the U.S. innovation landscape has seen a veritable explosion in the number of cooperative research centers (CRCs) including university-government-industry collaborations. These centers seek to provide organizational solutions to the challenge of cooperation in science. CRCs are known by a variety of labels including centers of excellence, joint laboratories, industry-university research centers (UIRCs) and engineering research centers, but they all are characterized by triadic public-private-university collaboration. CRCs function as intermediary organizations between the research base and private industry, and appear to “compensate for the lack of a system of government-funded industrial labs [such as Germany’s Fraunhofer-Gesellschaft] for what must be a fraction of the cost.” “To a large extent, research centers are the organizational solution to the problems team science poses for disciplinary and bureaucratically structured institutions like universities.”37 According to Research Centers and Services Directory (2010), nearly 16,000 university-based and non-profit research centers are operating in the U.S. and Canada, a significant percentage of which can fairly be characterized as CRCs.38 The vast preponderance of individual research and innovation projects and initiatives addressed in this study can fairly be characterized as CRCs. Support for CRCs, rather than traditional funding of grants to individual researchers, are how government organizations are funding strategies to promote research that is variously termed “translational,” “transformative,” “paradigm- shifting,” “high-risk, high-yield,” and so on.39 CRCs are increasingly becoming public-private partnerships with funding derived from government and private sources. CHALLENGES FACING PUBLIC RESEARCH UNIVERSITIES U.S. public research universities have traditionally received the biggest share of their funding from state and local governments. A 2012 study by the 37 Craig Boardman and Denis Gray, “The New Science and Engineering Management: Cooperative Research Centers as Government Policies, Industry Strategies, and Organizations,” Journal of Technology Transfer, February 2010, p. 447. 38 Denis Gray, “Cross Sector Research Collaboration in the USA: A National Innovation System Perspective,” Science and Public Policy 38(2):129, March 2011. Gray used the following definition of a CRC; “an organization or unit within a larger organization that performs research and also has an explicit mission (and related activities) to promote, directly or indirectly, cross-sector collaboration, knowledge and knowledge transfer, and ultimately innovation.” He indicated that “it is difficult to obtain an accurate estimate on how many exist” but that a 1994 survey had estimated a total of 1,100 “industry-university centers existed at about 200 universities” and that of the 16,000 university-based non-profit research centers in the USA and Canada, “I suspect a large percentage now meet the definition of a CRC.” Ibid. 39 Craig Boardman and Denis Gray, “The New Science and Engineering Management: Cooperative Research Centers as Government Policies, Industry Strategies, and Organizations,” Journal of Technology Transfer February 2010, p. 447.

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58 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES FIGURE 3-1 State appropriations as a percentage of public research universities total operating revenue, 1992 to 2010. SOURCE: National Science Board, Diminishing Funding and Rising Expectations: Trends and Challenges for Public Research Universities, Arlington, VA: National Science Foundation, 2012. NOTE: The NSB notes that these NCSES tabulations exclude Pennsylvania State University and Rutgers University because data for total revenues were unavailable. National Science Board (NSB) found that during the period from 1992 to 2010, the proportion of state outlays as a percentage of public universities’ total revenue fell from 38 percent to 23 percent, with the steepest decline occurring in the 2002 to 2010 time frame. States have confronted a variety of pressures that have contributed to this decline, including economic recession, rising costs, and the demands of non-higher education related mandated requirements. State appropriations per educated student hit a 25-year low in 2011. These trends led the NSB to warn that reductions in revenue of public research universities and gaps in salary between public and private research universities have the potential to lead to an outflow of talent at public research universities and reduced research capacity, These could result in greater concentration of talent and R&D in fewer geographical locations and at fewer universities, with smaller and less diverse student bodies. This could have a

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UNIVERSITIES AS INNOVATION DRIVERS 59 substantial impact on economic and workforce development at the local, state, and national levels.40 A 2013 study documented the reductions in state funding for higher education that have occurred since the onset of the financial crisis in 2008.41 The study found that every U.S. state except North Dakota and Wyoming were spending less per student on higher education in fiscal 2013 than they did prior to the financial crisis in 2008. On average, states are spending $2,353 or 28 percent less per student in fiscal 2013 than they did in 2008.42 These cuts translate into higher tuition and a decline in the quality of higher education which risks jeopardizing states “ability to compete for the jobs of the future.”43 In January, Moody’s Investors Services indicated it had a negative outlook for the entire higher education sector, citing “mounting fiscal pressure on all key university revenue sources.”44 HARNESSING THE UNIVERSITY OF HAWAII AS AN ENGINE OF GROWTH Hawaii faces a number of challenges in fostering innovation that arise out of its geographic location and economic history. Hawaii’s location in the middle of the Pacific Ocean provides unique challenges as well as important opportunities. On one hand, the Hawaiian Islands are remote from the U.S. mainland, small geographically, with a population of nearly a million people. On the other hand, as Senators Inouye and Akaka pointed out in their conference keynotes at the National Academies symposium on Building the Hawaii Innovation Economy, the islands are strategically located as America’s ‘front door’ to the vibrant economies of East Asia and are home to unique geographical features and land and marine life, as well as a rich cultural heritage.45 40 National Science Board, Diminishing Funding and Rising Expectations, op. cit., pp. 9-12, 19. 41 Phil Oliff, Vincent Palacios, Ingrid Johnson, and Michael Leachman, Recent Deep State Higher Education Cuts May Harm Students and the Economy for Years to Come, Washington, DC: Center on Budget and Policy Priorities, March 19, 2013. 42 Ibid. p.1. The costs reflect a number of pressures on state budgets. The recession of 2007-09 precipitated a steep decline in tax revenues at the state level. At the same time, school enrollments are up both at the K-12 and college level, partially reflecting the “baby boom echo..” 535,000 more K-12 students were enrolled in the 2013 school year than in 2008 and enrollment at the college even increased by about 1.3 million full-time students between 2008 and the 2011-12 school year. States have relied heavily on budget cuts, rather than revenue increases, to address budget deficits. Finally, the federal government has allowed emergency funds available to the states for education and Medicaid to expire. Ibid., p. 6. 43 Ibid., p. 2. 44 “State Budget Officers Seek Overhaul of University Funding,” Reuters March 22, 2013. 45 See the summary of the keynote addresses by Senators Daniel K. Inouye and Daniel K. Akaka in National Research Council, Building Hawaii’s Innovation Economy: Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2012.

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60 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES Hawaii’s economy has been over dependent on a succession of single products, beginning with sandalwood and continuing through whaling, sugar, pineapples, military bases, and currently, tourism. The contribution of these traditional industries to the state’s economy is unlikely to grow significantly, and Hawaii is currently looking to develop multi-sector interdisciplinary competencies to support science and technology-based innovation and spur economic growth.46 Recognizing the need for innovation-based growth, the state of Hawaii is actively seeking to diversify its economy by drawing on the University of Hawaii system and other research and educational organizations as engines of sustainable, innovation-led growth. To this end, the University of Hawaii under the leadership of its President, Dr. M.R.C. Greenwood, convened an Innovation Council made up of nationally recognized experts to develop recommendations to grow the state’s knowledge-based economy.47 The Innovation Council drew up four recommendations in 2011 to implement this vision:48  Identify research as an industry in Hawaii, undertake a strong recruiting effort to attract the top academics in areas which UH has a strategic advantage, such as volcanology, astronomy and oceanography; and formalize relationships to encourage collaborations similar to consortia.  Establish HiTE (Hawaii Innovation Technology Exchange Institute) staffed with technology transfer professionals, to promote public/private collaboration on translational research and offer assistance to start-ups from proof-of-concept centers and innovation centers.  Designate key areas for commercialization opportunities—energy and food sustainability and security; data analytics, and Asia-Pacific health.  Integrate entrepreneurship into the UH curriculum, including the creation of cross-disciplinary entrepreneurial courses. At a symposium convened for this study, University of Hawaii (UH) President Greenwood augmented the Committee’s areas for opportunity for UH, noting that in data analytics, “There’s an insatiable need to accumulate and analyze data, and we have some of the largest data sets in the world here in Hawaii. If we were able to master this new and emerging field, we would be a 46 See the summary of remarks by Neil Abercrombie, Governor of Hawaii as well as the summary of the presentation by Dr. Carl Bonham, University of Hawaii Economy Research Organization, “State and Regional Economic Context,” National Research Council, Building Hawaii’s Innovation Economy: Summary of a Symposium, January 13-14, 2011. 47 Presentation of University of Hawaii President M.R.C. Greenwood, National Research Council, Building Hawaii’s Innovative Economy, 2011, op. cit.; “Creating an Innovation Economy for Hawaii,” Civil Beat March 1, 2011. 48 The Council is comprised of a wide range of experts from academia, industry and government from Hawaii and other states.

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UNIVERSITIES AS INNOVATION DRIVERS 61 leader, not a follower.” She also pointed out that a new UH Cancer Center placed the university in a position to build expertise in cancers that are prevalent in Hawaii and the Pacific Rim region. She also indicated that in its curriculum, UH would eventually require entrepreneurial experience for every student.49 The University of Hawaii Innovations and Technology Transfers Program (UHITT) has established a pilot program to provide $25,000 to $100,000 in early stage funding to UH faculty members for proof-of-concept for commercialization of their research. The program is being funded by Hawaii Technology Development Venture (HTDV) a non-profit specializing in the commercialization of defense and homeland security technologies, and by UH.50 Fostering Start-ups A medical researcher at the University of Hawaii observed in 2010 that “intellectual property developed by UH faculty is an inadequately tapped resource with enormous potential for economic benefit.” The UH Upside fund, the University’s venture capital fund, is seeking to address that problem through support for start-ups commercializing technologies developed at the University. Fund manager Barry Weinman commented that “UH has a lot of research dollars that go in and then don’t come out for commercialization. What we’re trying to do with the Upside Fund is change that economics.”51 Recently the University of Hawai’i has spun off a number of innovative and successful companies.52  Protekai (“Proteins from the Sea”) was launched with the help of UH’s venture capital fund, the Upside Fund (supported by the UH Foundation) to commercialize the biomedical technology research of UH faculty member Angel Yanagihara, who discovered and patented physalia florescent proteins, which have major biomedical and diagnostic applications.53 The market for these proteins is $2.5 billion annually and growing at double-digit rates. 49 “Recommendations from the Innovation Council,” National Research Council, Building Hawaii’s Innovation Economy: Summary of a Symposium, op. cit. 50 Hawaii Technology Development Venture is funded by the Office of Naval Research (ONR) and seeks to create a Pacific regional center for commercializing defense/homeland security technologies. 51 “Venture Capital Fund Shines Light on UH,” Honolulu Star-Advertiser December 7, 2010. 52 Presentation of Barry Weinman, Allegis Capital LLC, “converting University Research into Start- Up Companies,” National Research Council, “Building Hawaii’s Innovation Economy,” 2011, op. cit. 53 Yanagihara is a researcher in the UH Department of Tropical Medicine, Medical Microbiology and Pharmacology, UH John A. Burns School of Medicine. When the Upside Fund invested $100,000 in Protekai’s startup in 2010, Yanagihara commented that “It’s really a very exciting discovery that’s been sitting on a shelf at UH. The full patent was issued, but we didn’t have the money for the next step to sequence the protein. This gives us the funds to go after the full sequence of genes, which is

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62 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES  KinetiCor: KinetiCor is a start-up commercializing technology developed at UH and the Queens Medical Center, which compensates for patient movement during an MRI, increases MRI efficiency, and ultimately reduces health care costs. KinetiCor licensed technology developed at UH and received early stage financing from the UH Upside Fund.54  Hoana was formed in 2001 and operates as a privately-held medical device company that aspires to be the world’s leader in intelligent medical sensing. Its proprietary LifeBed patient-monitoring systems utilize non-contact sensors embedded in a hospital mattress coverlet to monitor patients’ vital signs. Originally funded by grants from the U.S. military, this technology is being used to track patient conditions throughout the U.S.  Kuehnle Agro Systems was founded by UH professor Adelheid Kuehale to commercialize technology for producing biofuels from algae, and “it employs numerous graduates from the University of Hawaii.” The company has proven adept at securing federal support, and has received numerous SBIR awards from NSF, the Department of Agriculture, and DoD, as well as contracts with ONR and DARPA.55  Renewable Water Technologies: Renewable Water Technologies is a start-up by UH engineering professor Weilin Qu, his former UH student Riley McGivern and former head of Hawaii Strategic Development Corp. John Chock to commercialize UH-developed technology using solar thermal heat collectors to desalinize sea water. The business model for RWT envisions supply of small-scale desalinization systems for local military installations and hotels. Start- up funding was provided by HTDV and Sopogy Inc., a renewable energy company based in Hawaii.56 necessary to get to a point where we can use it as a diagnostic tool in medicine.” “Venture Capital Fund Shines Light on UH,” Honolulu Star-Advertiser December 7, 2010. 54 Upside Fund Director Barry Weinman commented that “The UH Foundation was intrigued by KinetiCor, not only for its extraordinary technology, but because of the huge financial upside that could be achieved by commercializing UH’s intellectual property. More than $2 billion globally a year is wasted by having to re-do MRI scans because the patient moves and blurs the images.” “High Tech Company Based on UH Research Launches Amid High Interest,” , March 10, 2013. 55 “Featured Scientist: Author/Entrepreneur/Biofuel Innovator Adeheid Kuehale,” TechHui (March 2, 2009); “Invest in New Ideas for Isles—Bio-tech Firms Here Will Change the Face of Our Local Economy,” Honolulu Star-Advertiser. 56 “Desalinization Pilot Project Harnesses Solar Power,” Honolulu Star-Advertiser (June 25, 2012.

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UNIVERSITIES AS INNOVATION DRIVERS 63 Box 3-1 Technology Induction Fosters Local Start-Ups Skai Ventures, founded by Hank Wuh, a graduate of the UH medical school, searches worldwide to identify technologies that can be commercialized in Hawaii, typically from universities and national laboratories, and which represent transformational rather than incremental innovation. Eyegenix, one of Skai’s portfolio companies, arose out of an Asian cultural aversion to organ/tissue transplants, including corneal transplants. Wuh found a technology at the University of Ottawa which could be used for an artificial cornea, and at Sweden’s Karolinska, found the surgeon who had done the first pre-clinical trials with the technology. Initial tests have been promising—resulting in complete restoration of vision—approvals are being pursued, and a manufacturing plant is being constructed on the site of an old Dole cannery in Hawaii which will be capable of supplying enough artificial corneas to meet the entire world’s demand. CBI Polymers leverages the artificial cornea technology to meet a U.S. Air Force request for a polymer that binds radioactive particles. A series of products were developed to remove toxic materials, including radioactive particles, to restore building surfacts, and to perform other tasks. As of early 2012, CBI Polymers had 50 customers worldwide.57 UH Space Flight Program In 2007, the UH School of Ocean and Earth Sciences and Technology (SOEST) collaborated with the UH College of Engineering to create the Hawaii Space Flight Laboratory (HSFL). The mission of the HSFL is to conduct research and engineering for terrestrial and planetary space missions; develop, launch and operate spacecraft from the Hawaiian Islands; provide relevant workforce experience, and collaborate with other interested institutions. The HSFL is designed, in part, to address the erosion of the U.S. space industry, largely attributable to the cost of getting into space from the U.S. “while other countries innovate cheaper ways.”58 UH plans to be the first university in the world with dedicated rocket launch capability for satellites built and operated by its faculty and students.59 Kauai Community College collaborates with HSFL in 57 Presentation by Hank Wuh, National Research Council, Building Hawaii’s Innovation Economy: Summary of a Symposium, op. cit. 58 Brian Taylor, University of Hawaii at Manoa, “Hawaii’s Satellite Launch Program,” National Research Council, Building Hawaii’s Innovation Economy: Summary of a Symposium, op. cit. One partner of the HSFL is Sandia National Laboratory, which has performed a large number of launches from the Pacific Missile Range Facility (PMRF) on the island of Kauai. Ibid. 59 “Research as an Industry: The Economic Contribution of HI?” .

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64 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES providing the primary communication links, and Honolulu Community College designs satellite payloads and is planning to operate receiving stations.60 HSFL intends to develop the capability to provide complete satellite systems and to spin off niche companies. UH will provide key support infrastructure, including a clean room, a thermo-vacuum chamber, and a vibration chamber for satellite testing and spin balance, facilities that will be available to students and local businesses. HSFL’s first operational mission is LEONIDAS (Low Earth-Orbiting Nanosatellite Integrated Defense Autonomous System), which will feature two launches.61  The first launch will seek to advance readiness of a semiconductor device to be used in future launches for data compression, and is being built by UH students.  The second launch, being built by UH faculty and graduate students, will conduct a thermal and visible image study of the Earth. Ultimately the UH satellite launch program is expected to yield innovations in the areas of cost reduction, risk reduction and capability of rapid response—“the involvement of the University in the program promises not only a new economic driver for Hawaii but also a focus for developing the high-tech workforce.”62 UH Astronomy Activities While Hawaii’s geography presents challenges, it also gives rise to opportunities in areas where the state enjoys natural advantages, which have given rise to actual and prospective innovation clusters. For example, the top of the mountain of Mauna Kea is one of the best sites for astronomy in the world. The state and federal governments have undertaken substantial investments in infrastructure and the creation of an 11,000 acre science reserve. At present 13 telescope facilities exist on Mauna Kea representing a capital investment of over $1 billion. UH has established sophisticated infrastructure on the mountain, including the largest capacity camera in existence, a charge-coupled device with 1.4 billion pixels. The cluster has generated commercial activity, including the sale of astronomy equipment by local companies and spinoffs like GL Scientific, founded by a former UH faculty member, which makes precision scientific instruments.63 60 “UH Plays a Vital Role in Hawaii’s First Space Launch,” , April 10, 2013). 61 HSFL partners in this effort include Vanenburg Air Force Base; Aerojet Corp, a maker of rocket parts; Sandia; NASA/Ames Research Center; and the Pacific Missile Range Facility. Taylor, “Hawaii’s Satellite Launch Program,” op. cit. 62 Taylor, “Hawaii’s Satellite Launch Program.” op. cit. 63 Robert McLaren, Institute for Astronomy, University of Hawaii, “Astronomy in Hawaii,” National Research Council, Building Hawaii’s Innovation Economy, 2011, op. cit.

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UNIVERSITIES AS INNOVATION DRIVERS 65 It is too early to determine whether UH’s innovation initiatives will move the state substantially further toward a knowledge-based economy. However, UH has developed its initiatives on the basis of expert advice and appears to be making progress in addressing its principal challenge, which is to increase the flow of its research results into commercial application. The establishment of the UH Upside Fund and the apparent success of a succession of UH-spawned start-ups is encouraging. UH is capitalizing on Hawaii’s unique geographic factors to develop competencies and companies which have the potential to attain world-class status and conceivable to dominate niche areas such as astronomy and low-cost satellites. THE GROWING ROLE OF COMMUNITY COLLEGES President Obama has placed a priority on expanding the role of the nation’s 2-year community colleges in improving U.S. workforce skills, fostering innovation, and enhancing U.S. manufacturing competitiveness. Community colleges currently enroll over 7 million students and award 790,000 associate degrees annually, as well as certificates in specialties directly relevant to work opportunities, such as manufacturing, computer, and scientific skills. These institutions also form a bridge to higher education for students requiring improved competencies in academic fields including STEM. Enrollment in Community Colleges has been growing dramatically, having increased by 75 percent between 1979 and 2009, and by 12 percent between December 2007 and June 2009.64 Calling these institutions “the unsung heroes of America’s education system,” he has called for 5 million new community college graduates by 2020 and in 2012, visited 10 community colleges65. The President has been seeking $8 billion in his budget for training community college students in the fields of health care, high tech manufacturing and transportation66. One of the 2-year institutions the President visited in 2012 was Lorain County Community College (LCCC) in Elyria, Ohio, which has attracted growing attention for its successful training programs and support for start-ups. In 1980, Lorain County had 43 percent of its work force engaged in manufacturing, the highest percentage of any county in northern Ohio, but by 64 Figures from National Center for Education Statistics 2010, Tables 196 and 198, cited in Department of Commerce, The Competitiveness and Innovative Capacity of the United States, January 2012, pp. 6-13. 65 “Community Colleges’ Cash Crunch Threatens Obama’s Retraining Plan,” Reuters March 5, 2013; “We already Knew the Value of 2-Year Schools,” Canandaigua Daily Messenger October 12, 2010. 66 Among other things, the Community College to Career fund would require 2-year colleges to partner with employers in a community to teach workforce skills. “President Obama Announces Community Colleges Partnership Program,” Lexington Examiner February 22, 2012. In 2009, the President sought $10 billion for a job-training program to produce more community college graduates, but only got $2 billion from the Congress, “Must Match Education to Jobs,” The Philadelphia Enquirer February 21, 2012.

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66 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES 2012, that figure had fallen to 14 percent.67 Between 2001 and 2012, the county lost 11,500 jobs overall, 10,500 of them in manufacturing.68 LCCC “worked to steer the county’s work force toward technology, business, and the sciences, as those who have lost their jobs in manufacturing look to make themselves competitive again.” 69 In 2009, the Cleveland Plain Dealer characterized LCCC as “an economic engine that is refocusing the work force in an area of high unemployment.”70 In 2011, the Plain Dealer commented that LCCC “has emerged as a major driver of efforts to transform Lorain County’s economy. It trains prospective business owners—as well as their future employees.”71 LCCC has struggled with limited resources to progressively improve workforce training programs. Local businesses complained in the late 1990s about the shortage of certified welders, and in 2007, the college secured a $4.9 million grant from the National Science Foundation to establish a center for welding education.72 For many years, LCCC pursued the funding necessary to open a testing center for sensors, a goal which was achieved with a $5.5 million award from the state of Ohio in 2010.73 LCCC partnered with other institutions to cut costs and enhance its curriculum.74 In 2012, LCCC’s “Transformations” program for computerized Numerically Controlled Machining reported a placement rate of over 90 percent of its participants within 3 months of graduation.75 The GLIDE Incubator In 2001, LCCC collaborated with the local Chamber of Commerce and the Lorain County commissioners to form the Great Lakes Innovation and Development Enterprise (“GLIDE”), a business incubator intended to “try to wrap good business processes around entrepreneurs who had good product or business ideas.” In the decade that followed 2001, GLIDE worked with over 1,900 entrepreneurs and incubated 65 companies, 62 of which were still in 67 Roy Church, “Stimulating Entrepreneurship: The Lorain County Model,” Building the Ohio Innovation Economy: Summary of a Symposium, op. cit. 68 “Federal Job Training Funding Helps Unemployed Find Work in High-Growth Areas,” Long Island Examiner April 19, 2012. 69 Lorain City Councilman Craig Snodgrass in “County Fears LCCC Fire Will Affect Economy,” The Plain Dealer February 21, 2009. 70 “County Fears LCCC Fire Will Affect Economy” The Plain Dealer February 21, 2009. 71 “Seed Funds See Fertile Ground Here,” The Plain Dealer October 20, 2011. 72 “LCC to Use Science Grant for Welding Program Study Center,” The Plain Dealer June 30, 2007; “LCCC Looks to Offset Cost of Welding Course,” Wyoming Tribune-Eagle August 28, 1998. 73 “CSU Amends Plan to Salvage Grant LCCC Would House Engineering Center,” The Plain Dealer February 19, 2009; “Server Projects Get Funding from Ohio’s Third Frontier,” The Plain Dealer September 1, 2010. 74 “Federal Job Training Funding Helps Unemployed Find Work in High-Growth Areas,” Long Island Examiner April 19, 2012. 75 Roy Church, “Lorain County Model,” op. cit.

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UNIVERSITIES AS INNOVATION DRIVERS 67 business in 2013.76 GLIDE began receiving financial support from Ohio’s Third Frontier program, a state-level economic development initiative in 2006.77 Roy Church, LCCC’s President, recalls that most of the new companies being launched entered the Valley of Death when they had exhausted friends, family, second mortgages, and credit cards. “We knew we had to figure out a way to bring in some pre-seed capital that would enable them to move their ideas to market.” The GLIDE development team considered use of LCCC’s foundation to provide funding, but encountered a legal barrier in the form of a rule that required the IRS to agree that a donation to a fund which invested in a private business was deductible. After an effort of over three years, GLIDE secured an IRS ruling that a foundation investment in a private company gave rise to a deductible “public good” if the entrepreneur receiving the funding provided one or more students with a work-based learning experience. This was a “triple win”—enabling the college to build educational value, the community to gain a new business, and the entrepreneur to receive financial support.78 In addition to financial support, GLIDE provides other forms of assistance to entrepreneurs. Companies located at the LCCC incubator (the Entrepreneurship Innovation Center) enjoy access to the LCCC infrastructure, faculty and students, co-located start-ups, and GLIDE advisors. The advisors are individuals with extensive business experience in both entrepreneurial ventures and corporate management, and competencies in engineering, materials, technology, business generation, distribution, quality control, marketing and sales, and strategic development.79 In 2007, the LCCC Foundation was renamed the Ohio Innovation Fund, extending its investments to a 21-country region in northeast Ohio. By 2013, it had made 71 awards to 60 companies launched by professors, students, and local citizens. Based on metrics developed by the Ohio Third Frontier Program, the 3.8 million invested in the Fund through September 2010 yielded a “return on investment” of $42 million in follow-on investments.80 The Financial Challenge While the President and the business community are calling for an expanded role for community colleges, steep cuts in the level of state funding for 2-year institutions is forcing many of them to raise tuition and cut faculty 76 GLIDE invests at two levels: $25,000 for the “imagining” stage and completion of research, and $100,000 to mature the business, which must be matched 1:1 by the entrepreneur and repaid after 5 years. Roy Church, “Lorain County Model,” op. cit. 77 Roy Church, “Lorain County Model,” op. cit. “Entrepreneurial Efforts Get Grants,” The Plain Dealer, November 17, 2006. 78 Roy Church, “Lorain County Model,” op cit. 79 LCCC, “Great Lakes Innovation and Development Enterprise” . 80 Calculation of ROI from an economic development perspective considers factors such as follow-on investments, earning, and other types of investments. Roy Church, “Lorain County Model,” op. cit.

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68 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES and course offerings.81 Because community colleges are far more dependent on state funding than four year institutions, the cuts in state funding are particularly challenging.82 Between 2000 and 2010, the average annual community college tuition increased by 41 percent, to $3,269.83 The President’s proposals for federal assistance to the community colleges have run into stiff resistance in the Congress. The fiscal crisis facing community colleges is causing concern in the manufacturing community that depends on the 2-year institutions as “an essential source of skilled workers.”84 LESSONS LEARNED  A distinguishing feature of the American innovation ecosystem is that it is driven by a network of superb research universities.  This innovation ecosystem is dominated by triadic collaborations involving universities, industry, and government, with institutional arrangements that promote silo-breaking and multidisciplinary research.  The decentralization of the U.S. university system lends itself to differentiated state and regional innovation strategies that leverage local geographic, industrial legacies and cultural advantages.  U.S. community colleges are an important resource base for creating the high-skills work force needed to sustain an innovation-based economy.  The decline in state funding for public research universities and community colleges represents a fundamental threat to the nation’s capacity to create and capture the fruits of innovation. 81 A 2013 report by the nonprofit Public Policy Institute of California indicated that in the wake of $1.5 billion in state budget cuts, between 2007 and 2012 the state’s 112 2-year colleges experienced a decline in enrollment of 500,000 students (from 2.9 million to 2.4 million). Across the system, course offerings dropped by 21 percent. “Budget Cuts Hobble Calif. Community Colleges,” Associated Press March 26, 2013. The same phenomenon is occurring in many other states. “Texas Community Colleges Face Shortfall,” Corpus Christi Caller-Times January 25, 2013; “Community Colleges’ Cash Crunch Threatens Obama’s Retraining Plan,” Reuters March 5, 2013. 82 In the 2008-2009 school years, 47 percent of the revenues were derived from state appropriations, compared with 24 percent for public 4 year institutions. U.S. Department of Commerce, The Competitiveness and Innovative Capacity of the United States, January 2012, citing figures from the National Center for Education Statistics, IPEDS, 2010, Table 198. 83 “Community Colleges’ Cash Crunch Threatens Obama’s Retraining Plan,” Reuters March 5, 2013. 84 Ibid.